Dear Valued Shareholders,
On behalf of the Board of Directors of Petrol One Resources Berhad (“PETONE” or “Company”), it gives us great pleasure to present the Annual Report 2017, the Audited Financial Statements for the FY2017 and the management discussion and analysis of financial condition and results of operations of PETONE Group (the Company and its subsidiaries) (“MDA”).
FY2017 was expected to be a difficult and challenging year for the oil and gas (“O&G”) industry. However, the O&G midstream sector turned up to be on an expansion path. In 2016, the midstream sector generated an estimated revenue of RM3.61 billion – up by 3.1% over the RM3.50 billion recorded in 2015, and experts pointed out that the outlook for the marine transportation and support services as well as the onshore storage services segments are expected to remain positive moving forward, which bodes well with the business strategy of PETONE Group.
PETONE ventured into Oil and Gas industry in 2008. Headquartered in Kuala Lumpur, Malaysia, PETONE is one of South East Asia’s leading Independent Oil & Gas storage and offshore support services companies. The Company’s core commercial activities are centred on storage of crude oil and its derivative products such as fuel oil and petrochemicals among others both in onshore facilities, as well in ﬂoating storage units; oil terminal support services; leasing and operating standby safety vessels for rig support; ship-to-ship transfer operations.
The Group’s business strategy remains on the market for marine transportation and support services in Malaysia. The prolonged depression of the world oil prices has spurred the demand of storage and bulk liquid trading logistic support in the downstream and trading market and therefore, the Group continues its focus in the provision of surveyor services in relation to ship-to-ship (“STS”) transfer operations for oil products stored on floating storage units (“FSUs”) which are chartered/owned by its indirect subsidiary company, One Petroleum (L) Ltd’s customers, and located in the region of Johor Darul Takzim.
STS transfer operations are considered complex and entail both comprehensive and critical sets of procedures that must be carefully executed in accordance with international conventions, particularly on the safety of life at sea and the prevention of pollution caused by sea-going vessels. In instances where vessel owners do not have the resources and/or the experience to perform such assignments in an efficient manner, market players with the relevant technical expertise and long-term experience, such as the PETONE Group, may be engaged to coordinate and facilitate the STS transfer operations.
Leveraging on similar skill sets with that of STS operations and managing FSU in the past, the Group through one of its subsidiary company, Petrol One Storage Sdn. Bhd. (“POSSB”) successfully won a land storage management contract to manage an approximately 220,400 cubic meter oil storage facilities located at Pelabuhan Klang, Selangor in 2016. The contract requires the POSSB team to manage the day to day operations of the storage facilities, coordinating in the loading and unloading of storage product i.e. ship-to-land and vice versa and most importantly meeting the expectations of the products and the storage facilities owners.
The Group continues to nurture its offshore support vessels (“OSVs”) activities through the provision of safety standby vessel (“SSV”) services on a time charter basis. SSV services are complementary to the Group’s existing business, leveraging on the Group’s long-term experience in vessel operations. The Group will continue to work diligently to expand in this area of operations notwithstanding the announcement by Petronas to curtail its capital and operating costs as the Group is of the view that the demand of OSV remains resilience due to the tightening of the Cabotage Policy that favours Malaysian flagged vessels.
We are pleased to advise that this is the third consecutive year in which PETONE is performing well, the Group continues to record relatively good results notwithstanding the overall contraction of the O&G industry in Malaysia.
The Group’s key risks management encompasses major business and financial areas as follow :
Although mitigation or control processes are designed to manage the key risks identified, there can be no assurance that the risks will not materially affect the business of PETONE Group or the industry as a whole. On-going self-monitoring and evaluation of the Group’s risk profile and internal control system are crucial to align the risks and our business objectives.
To recapitulate, the Company had been classified as an ‘affected listed issuer’ pursuant to Paragraph 2.1(a) of the Practice Note 17 (“PN17”) under the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“BMSB”) on 30 August 2012. The PN17 criterion was triggered as a result of the shareholders’ equity of PETONE Group on a consolidated basis falling below 25% of the Company’s issued and paid-up capital, which was less than RM40,000,000.
Since then, our plan to regularise the business and financial condition of the Group was structured and updated to be in-lined with the Group’s development. On 27 July 2017, modifications to the Proposed Regularisation Plan was done after taking into consideration the consent judgement recorded by the Court of Appeal on 24 March 2016 in relation to the orders allowed by the High Court pursuant to an application made by one of the Scheme Creditors and provisions such as the abolishment of par value regime and consequently the concept of authorised share capital under the Companies Act 2016 “CA2016”) which had come into effect on 31 January 2017. The Company’s Principal Adviser, Public Investment Bank Berhad (“PIVB”) had announced on behalf of the Board of the revision of the Proposed Regularisation Plan now comprising :
(a) Proposed capital reduction of the share capital of PETONE pursuant to Sections 115(a) and 116 of the CA2016,
(b) Proposed private placement of 200,000,000 Placement Shares to identified investors at an issue price of RM0.10 per Placement Shares after the completion of Proposed Capital Reduction,
(c) Proposed renounceable rights issue of up to 501,609,690 new Rights Shares together with up to 376,207,267 Warrants at an issue price of RM0.10 per Rights Share on the basis of 2 Rights Shares for every 1 existing PETONE share held, together with 3 Warrants for every 4 Rights Shares subscribed after the completion of the Proposed Private Placement,
(d) Proposed settlement of the amounts owing to the unsecured creditors of PETONE and its subsidiaries amounting to approximately RM121,894,831 as at 30 September 2013 under a scheme of arrangement and compromise pursuant to Section 176 of the Companies Act 1965.
The Board is working hard with the appointed Advisers to ensure the Proposed Regularisation Plan is materialised within the extended time frame of up to 12 February 2018 granted by Bursa Malaysia Securities Berhad. Various elements of the Proposed Regularisation Plan would be presented to shareholders for consideration in due course.
As we enter the third year of sustained low prices for oil, every company in the O&G industry is being challenged in a different way. Competition, slumping oil prices, and glutted energy demand are not the only giant-scale factors affecting us. The O&G landscape is being significantly reshaped by a potent emerging trend: the fear of climate change and a powerful, concerted effort to reduce CO2 emissions and minimize production costs.
We have to rise to the occasion, repositioning ourselves based on what we do well today as well as on the opportunities going forward. We are constantly reviewing our business strategy to focus on what we do best and where we can best outpace competitors. The emphasis for O&G industry for the region is on a cost cutting mode, it is critical for us to avoid becoming overextended in legacy areas and engaging in price war. We will be looking for growth areas where we already have massive strength that we can draw on, on areas where we are agile enough to adapt to the changing market conditions.
From operational point of view, the Group will remain on track by servicing its current contracts whilst continuing to identify other opportunities and secure further contracts in an effort to strengthen its financial position. For business investment, we will channel funding into the areas of growth that best promote our differentiating capabilities and developing a more targeted approach to strategy emphasizing of growth and sustainability.
According to our analysts, the demand for marine transportation and support services in Malaysia is expected to continue its growth trend in-line with the projected growth in the midstream sector of the domestic O&G industry, which bodes well for the business regularisation strategy of PETONE. With our Proposed Regularisation Plan at its final stage, we are excited by the prospect of what the Group could do moving forward.
Save for the on-going Proposed Regularisation Plan, the Company did not undertake any other corporate proposal to raise proceeds during the FY2017.
The Company does not have any material contracts (not being contracts entered into in the ordinary course of business) involving Directors’ and Major Shareholders’ interest, either still subsisting at the end of the financial year or, if not then subsisting, entered into since the end of the previous financial year.
The Company and/or its subsidiaries do not hold any property.
The Company did not seek shareholders’ mandate for RRPT in the preceding AGM.
Lastly, we would like to express our sincere gratitude and appreciation to all shareholders for their continued support and confidence in the Group. Our appreciation also goes to all the professionals that supported the Group during its trying times and to the management team and employees for their unwavering contributions, commitment and dedication to achieving the results of the Group for the FY2017.
For and on behalf of the Board of Petrol One Resources Berhad
Peter Thomas Phelan
Senior Independent Non-Executive Chairman
Date : 30th October 2017
Azlan Shairi Bin Asidin
Executive Director cum Chief Executive Officer
Date : 30th October 2017